Money strolls up in wingtips

Preston Partners makes deals happen

November 18, 2001|By Meredith Cohn | Meredith Cohn,SUN STAFF

David Scheffenacker extended a flashlight to arm's length as he trudged through the damp and boarded building just north of Baltimore's central business district, trying to avoid puddles on his wingtips.

He doesn't own the building or even want to buy it. But he thinks the former offices could be overhauled into nice apartments. It's his job to persuade others to pay for it.

David Preston Scheffenacker Jr. has built a business representing the most crucial of partners in every development: the lender.

"We bring the money to the table, and that's one very important part of real estate, " he said. "We have to be good at picking projects. At the end of the day, the bank wants its money back."

Preston Partners Inc., his 9-year-old Lutherville-based company, offers traditional leasing and sales services, but much of its business comes from matching up buildings with financing. While Scheffenacker has homed in on some of the region's high-profile real estate, the company remains relatively obscure in an industry that thrives on publicity.

The owner of the Baltimore apartment project at 222 E. Saratoga St., architect Leo D'Aleo, met Scheffenacker about three years ago on a project where they both worked.

After months of effort, some city aid and a financing deal with lenders close, D'Aleo is confident enough to start construction Dec. 1.

D'Aleo said it didn't matter who else knew Scheffenacker besides the lenders.

"There were a number of directions you could go," D'Aleo said. "I could have gotten myself a bank loan, but I wanted to look at all my alternatives. I couldn't do that on my own. I didn't have the relationships with institutional investors."

If anyone has learned about Scheffenacker and Preston Partners, it is the banks - or more often, institutional investors such as insurance companies and pension funds. Scheffenacker labored for years cold-calling those businesses that had money to spend and cold-calling landlords who might want to make a deal.

Scheffenacker, 42 and a Baltimore native, has worked in various roles in real estate. But he learned that starting his own company meant starting from scratch. He didn't have a prominent logo, well-established employees or big-name clients.

He learned the industry from his family. His father, grandfather and great-grandfather were all in Baltimore real estate either as developers or landlords. Preston is a family name.

Start wasn't easy

But the field of companies was crowded at the time - the early 1990s - and the real estate industry was in shambles. Overbuilding in the 1980s and a poor economy that produced few new tenants led to mass bankruptcies among owners.

Scheffenacker made his first deal investing with his father's money. David P. Scheffenacker Sr. was persuaded to put up the seed money for Preston Partners in 1992.

"It might have been easier to borrow money from the IRS," the younger Scheffenacker says.

His father still comes to the office about once a week to check on his investment and offer advice.

"I told him to never be embarrassed about presenting an idea and never be embarrassed about asking a question; all they can do is say no," the elder Scheffenacker said. "He's turned out to be one of the best cold-callers in the business."

Armed only with a phone, list of numbers and a car, Scheffenacker Jr. began making those calls to investors to see what types of buildings they would invest in during those turbulent early 1990s. Then he called on landlords, whether their buildings were for sale or not.

Over time, and a series of deals, relationships have developed with the institutional investors. To close some of those deals, he invested in them himself or found tenants for buildings that had too much vacancy.

In the past five years, he said, the private company has done $200 million to $400 million in transactions annually, mostly in suburban Baltimore, but also around the state and in Baltimore. Considering the company has just a dozen employees, which includes the administrative staff, "that's probably more than their share," one local developer said.

Multimillion-dollar deals

The number of deals is much fewer than those of competitor real estate companies, but most of the deals are large. Preston Partners recently closed on a $40 million lease for a warehouse in Harford County with Clorox Co. And it made a $35.8 million sale of office space in the Highwoods real estate investment trust portfolio in Timonium to Corporate Office Properties Trust.

Based on dollar value, CoStar Group, a real estate information services company, listed Preston as the No.1 company for investment sales of industrial properties. The company is generally on the region's list of largest real estate deals of the year.

Things have slowed with the economy, Scheffenacker acknowledges. But there is still work, a lot of which he still does by a cell phone in his sports utility vehicle.

The SUV is for driving around undeveloped parcels of land that could become office buildings or warehouses.